Thursday, August 5, 2010

HST cooling housing market: Realtors

Garry Marr, Financial Post · Thursday, Aug. 5, 2010

TORONTO -- Almost half of its real estate agents say the main reason for the cooling housing market is the harmonized sales tax, according to a survey from Royal LePage Real Estate Services.
The company conducted an online-only poll of its realtors at the end of July — almost a month after the HST went into affect in British Columbia and Ontario — and found that 43.9% of the 769 respondents in those provinces blamed the new tax for the downturn. The HST was considered a bigger threat than rising interest rates despite two recent quarter point hikes from the Bank of Canada.
The Canadian Real Estate Association said last month that sales in the second quarter of the year were down 13.3% from the first quarter, on a seasonally adjusted basis. June sales dropped 8.2% from May.
Price increases are also being affected with demand withering. CREA said the national average sales price rose just 4.9% from a year ago to $342,662 in June.
“We wanted to understand the impact HST has had since it was introduced, and what we found is that there is a need to better educate home buyers and sellers to ensure they understand when the HST is applicable,” said Phil Soper, chief executive of Royal LePage. “According to our realtors who work in B.C. and Ontario communities every day, misconceptions about the HST are having an effect on the market in both provinces.”
The HST applies to newly built homes with exemptions up to a certain amount in both provinces. But it does not apply to the purchase price of resale homes. It does apply to the fees for services and commissions associated with any real estate transaction. New homes represent less than 10% of business, says Royal LePage.
Agents indicated consumers don’t seem to understand how the tax works. When asked to provide examples of comments heard from buyers and sellers regarding the HST and its effect on the housing market, 46.7% of agents indicated that confusion about HST remains more than one month after its introduction.
“Among the most common responses to the survey’s open-ended questions were that many home buyers incorrectly believe HST applies to the sale price of resale properties,” says LePage.
Interest rates were only cited by 28.4% of agents as the biggest threat to the housing market. Overall, 86% of agents report the HST is affecting their business some way.
“While we predicted that the prospect of rising interest rates would put a damper on the housing market, our agents are finding that the HST is actually having the greater impact on buyer behaviour, at least in the short-term,” said Mr. Soper. “Our take-away from this survey is that we need to do more as an industry to educate consumers about the HST.”